“A bend in the road is not the end of the road… unless you fail to make the turn.”
– Helen Keller
There’s no way to sugar coat it- this has been a tough year. This quarter especially has not been good. July was positive but then what it gained in July, it gave up in August and September. These things happen sometimes.
Let’s take a look at what we’ve seen the past couple of months and what we can do to stay positive as we move through the end of the year.
Transcript
Hi, there. Mike Brady with Generosity Wealth Management, a comprehensive full service firm here in in Boulder, Colorado.
This has been a tough year. I’m not going to lie to you. This quarter has not been good. July was positive but then what it gained in July it gave up in August and September. I’m recording this on September 18 so I’m not quite sure what the last week-and-a-half to two weeks of September are going to bring, but it’s been a really tough quarter. It’s been a very tough year. These things happen sometimes.
Up on the screen you’re going to see the multiple year graph and I have now circled the decline that we have seen this year where we have given up in the last nine months or so what we gained in a year-and-a-half. No, we didn’t give up the entire stock market. We gave up what we earned in the last year-and-a-half in general with the unmanaged stock market indexes. Sometimes that happens. It stinks absolutely every time. If you look up on the screen I’ve done another chart. Those that are on the bottom are the intra-year declines. The black numbers or the dark numbers are what the year ended. You’ll see that the last three years were positive even though they had during the year some negatives. This year it’s been negative. It was worse negative but now it is still negative. Three out of four years as we go back 30-40 years historically have been positive and one out of four is negative. Every single time it happens it stinks. It’s all right to have some emotion about it. The question which we’ll talk about here in a little bit is what you do with that emotion. Having the emotion is fine, doing something with it that is detrimental to your long term is quite another matter.
Up on the screen is another chart which shows even bonds this year are negative. I’m putting a little red box around that third column over. If you had 30 year guaranteed government bonds, you’re down almost 30% so far this year. You know that by the time they mature it will be back and it will recover all of that. But even bonds this year – stocks are down and bonds are down. If you just have your money in a money market, if you have it in your mattress, due to inflation you’re also losing money. Inflation is one of the big drivers which we’re gong to talk about here in just a second.
On this graph right here up on the screen on the left hand side you’re going to see what the stock market does, does not necessarily correlate directly with what the economy is doing. However, they definitely walk hand-in-hand even if it’s not perfectly. You’re going to see there on the left hand side that expansions in the economy average 47 months – 47 months. That’s about four years and recessions are about 14 months on average, so that’s about a year. Getting back to that whole discussion I had just a few minutes ago, three out of four are positive and one out of four is negative. Those are odds that I’m willing to go to invest in going forward. The future is always uncertain. However, we’re going back decades and decades in a diversified portfolio, especially of unmanaged stock market indexes.
I said I was going to talk about inflation. Look at that chart right there. I have now circled what has happened in the last year-and-a-half. Inflation is the big driver from my point of view. Now, why do we have some inflation? This is a tricky one. We’ve got a supply problem and we’ve got a monetary problem. Step back for just a second. When people talk about fiscal policy that’s what the U.S. government does. Monetary policy is what the Fed does. The supply is global, whether you’re able to get your circuit board or various materials that people want. If we just had a supply problem then if there was a finite, if there were ten widgets, ten things, and a lot of people wanted those ten things they would bid the price up. It was very important to complete your car or your particular manufactured goods. However, in this case we’ve thrown some gas onto the fire here. We have flooded through fiscal policy, eve if it was well intentioned, we have flooded the market with lots of cash at the same time we have restricted supply which is a problem. This then causes the Fed to want to take money out of the market and they do that by raising the interest rate.
You’ve got all these competing forces. It’s going to take a little while for it to settle down. This has been a huge shock to the system over the last couple of years. This is pretty unique. It’s not pleasant. In my opinion there were some things that we could have done differently. Maybe that’s in hindsight given the benefit of the doubt, but there have been some missteps here and now we are correcting that.
When we look back at various crises in the past and various declines there’s usually some reason. It seems only so obvious after the fact whether it’s the tech bubble, whether or not it’s a housing crises which I would argue was really a cash and a credit crunch back there in 2008. Right now we have a money supply issue and a global supply mess getting materials to the proper manufacturers. Having unpleasant emotions around it is normal. We are human beings for goodness sake. The question is do you do something short term when you really have long term plans? The answer should be no. We have long term plans and so we can’t let short term data dictate those long term plans.
It’s interesting that the market went sharply down but came back relatively quickly. That’s like ripping the bandaid off very quickly – boom. However, this is a ripping off of the bandaid very slowly. It is being dragged out over months, over some quarters. All I can really say is that 100 percent of the time going back 100 years, it has recovered if you are in a diversified portfolio. I expect this to be the same so I’m not worried except to the degree that I want it back as quickly as possible. Let’s not kid each other. That’s more fun. When it is down, everything is down, pretty much everything is down both in the U.S., internationally, stocks, bonds. We’ve got to figure out this mess. The best thing for us to do is always keep our eye on that long term and stay cool as cucumbers.
Mike Brady, 303-747-6455. Have a great day. Let’s hope that this next quarter is a good quarter and that we end up the year a little bit better than we are right now. Have a great day. Bye-bye.